Day: October 22, 2020

Deep Dive: Big U.S. banks’ day of reckoning is delayed

This post was originally published on this site

Heading into third-quarter earnings season, analysts were expecting relatively upbeat results for the largest U.S. banks.

Credit costs were expected to decline from the previous quarter, and they did, to a greater extent than expected. Among the 10 largest U.S. banks, eight reported better-than-expected earnings, with some beating estimates by a wide margin.

But most of the stocks have declined since earnings season began. Below are tables comparing actual results to analysts’ estimates and to previous quarters.

Loan losses rise only slightly

The largest banks made outsized provisions for credit losses (the amount added to loan loss reserves, which directly lowers pre-tax earnings) during the first and second quarters, to prepare for an expected wave of loan defaults. This is normal activity in any recession.

So two quarters of earnings were depressed or wiped out for many banks that focus on lending, as opposed to trust and custody or investment banks. That changed during the third quarter, with much lower provisions.

Capital One Financial Corp. US:COF released $742 million in loan loss reserves during the third quarter — that is, the bank’s net loan charge-offs exceeded its provisions for reserves by that much, boosting earnings. Its loan losses during the third quarter were down tremendously from the second quarter of 2020 and even from the year-earlier quarter.

During a recession and recovery cycle, sequential comparisons of banks’ results can be more important than the usual year-over-year comparisons, not only because of loan defaults and losses but because of the rapid decline in interest rates. For the largest banks, third-quarter provisions were down significantly from the second quarter.

Here are the 10 largest U.S. banks by total assets, with third-quarter provisions for loan losses compared with consensus estimates among analysts polled by FactSet from our Oct. 8 earnings preview, along with actual figures for the previous quarter and the third quarter of 2019.

All dollar figures in the following tables are in millions, except for total assets, which are in billions. Scroll the table to see all the data.

Bank Ticker Provision for loan loss reserves – Q3 2020 Estimated provision for loan losses – Q3 2020 – Oct. 7 Actual Q3 provision, less estimate Provision for loan loss reserves – Q2 2020 Provision for loan loss reserves – Q3 2019 Total assets ($ billions)
J.P. Morgan Chase & Co. US:JPM $611 $2,885 -$2,274 $10,473 $1,514 $3,246
Bank of America Corp US:BAC $1,389 $2,236 -$847 $5,117 $779 $2,738
Citigroup Inc. US:C $1,809 $4,004 -$2,195 $7,903 $2,071 $2,234
Wells Fargo & Co. US:WFC $769 $1,921 -$1,152 $9,534 $695 $1,922
Goldman Sachs Group Inc. US:GS $278 $550 -$272 $1,590 $291 $1,132
Morgan Stanley US:MS $0 N/A N/A $246 $0 $956
U.S. Bancorp US:USB $635 $806 -$171 $1,737 $367 $540
Truist Financial Corp. US:TFC $421 $603 -$182 $844 $117 $499
PNC Financial Services Group Inc. US:PNC $52 $394 -$342 $2,463 $183 $462
Bank of New York Mellon Corp. US:BK $9 $40 -$31 $143 -$16 $428
Capital One Financial Corp. US:COF 331  $2,160 -$1,829 $4,246 $1,383 $422
State Street Corp. US:STT $0 $18 -$18 $52 $2 $272
Source: FactSet

Click on the tickers for more about each bank holding company, including news coverage, analysts’ ratings and price targets.

“The jury is still out” on how severely the pandemic credit crisis will be for loan portfolios, according to Pri de Silva, a senior corporate bond analyst at Aware Asset Management in New York. During an interview, de Silva said credit losses tend to peak at the end of a recession.

“That trend should hold steady this time. If you look at the COVID-19 recession, three quarters in, losses are still in line with 2019.”

Net charge-offs are loan balances written off and charged against reserves, less any recoveries. Here are those totals from the third quarter, compared with the second quarter of 2020 and the third quarter of 2019:

Bank Ticker Net charge-offs – Q3 2020 Net charge-offs – Q2 2020 Net charge-offs – Q3 2019
J.P. Morgan Chase & Co. US:JPM $1,200 $1,560 $1,371
Bank of America Corp US:BAC $972 $1,146 $811
Citigroup Inc. US:C $1,919 $2,206 $1,913
Wells Fargo & Co. US:WFC $683 $1,113 $645
Goldman Sachs Group Inc. US:GS $340 N/A N/A
Morgan Stanley US:MS N/A N/A N/A
U.S. Bancorp US:USB $515 $437 $352
Truist Financial Corp. US:TFC   $326 $390 $153
PNC Financial Services Group Inc. US:PNC $155 $236 $155
Bank of New York Mellon Corp. US:BK -$2 -$3 $1
Capital One Financial Corp. US:COF $1,073 $1,505 $1,462
State Street Corp. US:STT   $0 $0 $0
Source: FactSet

For most of the big banks listed here, net charge-offs declined sequentially during the third quarter. Here’s another look at charge-off activity relative to average loans:

Bank Ticker Net charge-offs/ avg. loans – Q3 2020 Net charge-offs/ avg. loans – Q2, 2020 Net charge-offs/ avg. loans – Q3, 2019
J.P. Morgan Chase & Co. US:JPM 0.63% 0.59% 0.59%
Bank of America Corp US:BAC 0.47% 0.44% 0.37%
Citigroup Inc. US:C N/A 1.21% 1.15%
Wells Fargo & Co. US:WFC 0.48% 0.37% 0.28%
Goldman Sachs Group Inc. US:GS N/A 0.70% 0.57%
Morgan Stanley US:MS N/A 0.09% 0.01%
U.S. Bancorp US:USB 0.56% 0.50% 0.48%
Truist Financial Corp. US:TFC N/A 0.34% 0.38%
PNC Financial Services Group Inc. US:PNC 0.37% 0.32% 0.24%
Bank of New York Mellon Corp. US:BK -0.01% -0.01% 0.00%
Capital One Financial Corp. US:COF 1.72% 2.38% 2.38%
State Street Corp. US:STT 0.22% 0.07% 0.00%
Source: FactSet

Net charge-off ratios aren’t yet available for all the banks because average loans won’t be available until their full 10-Q reports are filed. But you can see small sequential and year-over-year increases in net charge-off rates, which are still at historically low levels for any economy. Capital One Financial’s charge-off rates are higher than the others because of its concentration in credit-card loans, which made up 42% of the bank’s total loans held for investment as of Sept. 30. That also explains Capital One’s much higher net interest margin, below.

During J.P. Morgan Chase’s US:JPM  third-quarter earnings call, CEO Jamie Dimon said that under his team’s “base case” economic projections, the bank was “probably something like $10 billion over-reserved.” Dimon also cautioned that it was “hard to predict” the direction and timing of a continuing economic recovery and said the bank was “prepared for a relatively adverse case.”

Being over-reserved by $10 billion points to an eventually release of reserves that would pad earnings and support good comparisons several quarters out. When asked about $10 billion in potential reserve releases, de Silva said “it is possible.”

JPM, Citigroup US:C  and Bank of America US:BAC  “have reserved the most because they are the biggest credit card issuers. Any time realized losses come in better than expected, those are the ones that are going to outperform,” de Silva said.

Dan Eye, head of asset allocation and equity research at Fort Pitt Capital Group in Pittsburgh, said JPM is his favorite stock in the space right now, because of its “fortress balance sheet, great management team and great capital position.”

But Mark Doctoroff, the global co-head of MUFG’s Financial Institutions Group, said it’s too early to expect a rosy credit cycle. The effect of the federal government’s stimulus programs to help consumers and businesses, along with loan forbearances for mortgage borrowers and delays of evictions for renters who are unable to pay, has been “kind of kicking the can.”

“Going forward, stimulus talks continue and there is a lot of damage to the economy. In New York City, there are for-rent or lease signs everywhere,” he added during an interview. He expects to have a better indication of whether or not banks will see actual damage to their balance sheets from loan losses in the first quarter of 2022.

Declining interest income

With the Federal Reserve lowering the target for the short-term federal-funds rate to a range of zero to 0.25% and pushing down long-term interest rates by buying bonds, the yield curve has flattened, making it more difficult for banks to earn their usual spread income.

Bank Ticker Net interest income – Q3, 2020 Net interest income – Q2, 2020 Net interest income – Q3, 2019
J.P. Morgan Chase & Co. US:JPM $13,013 $13,853 $14,228
Bank of America Corp US:BAC $10,129 $10,848 $12,187
Citigroup Inc. US:C $10,493 $11,080 $11,641
Wells Fargo & Co. US:WFC $9,368 $9,880 $11,625
Goldman Sachs Group Inc. US:GS $1,084 $944 $1,008
Morgan Stanley US:MS $1,486 $1,600 $1,218
U.S. Bancorp US:USB $3,227 $3,200 $3,281
Truist Financial Corp. US:TFC $3,362 $3,448 $1,700
PNC Financial Services Group Inc. US:PNC $2,484 $2,527 $2,504
Bank of New York Mellon Corp. US:BK $703 $780 $731
Capital One Financial Corp. US:COF $5,555 $5,460 $5,737
State Street Corp. US:STT $478 $559 $644
Source: FactSet

Net interest income was down for most of the big banks not only because of narrower spreads but because of declining lending activity. During the third quarter, mortgage lending volume declined from the second quarter, when there was a spike in refinancing activity because of the sharp decline in interest rates, according to Eye.

A bank’s net interest margin is its interest income, less interest on deposits and borrowings, divided by average total assets.

Net interest margins have narrowed for most of the big banks:

Bank Ticker Net interest margin – Q3, 2020 Net interest margin – Q2, 2020 Net interest margin – Q3, 2019
J.P. Morgan Chase & Co. US:JPM 1.82% 1.99% 2.41%
Bank of America Corp US:BAC 1.72% 1.87% 2.41%
Citigroup Inc. US:C 2.03% 2.17% 2.56%
Wells Fargo & Co. US:WFC 2.13% 2.25% 2.66%
Goldman Sachs Group Inc. US:GS N/A 0.38% 0.44%
Morgan Stanley US:MS N/A 0.90% 0.60%
U.S. Bancorp US:USB 2.67% 2.62% 3.02%
Truist Financial Corp. US:TFC 3.26% 3.13% 3.37%
PNC Financial Services Group Inc. US:PNC 2.39% 2.52% 2.84%
Bank of New York Mellon Corp. US:BK N/A 0.88% 0.99%
Capital One Financial Corp. US:COF 5.68% 5.78% 6.73%
State Street Corp. US:STT 0.85% 0.93% 1.42%
Source: FactSet

There’s always hope from the banks that the yield curve will steepen.

“We can still see rates move on the longer end of the curve,” Eye said. “What would drive that would be better economic data and some inflation in the system as well.”

Those might lead to a curtailment of bond purchases by the Federal Reserve. It is also possible that a continuing $3 trillion federal budget deficit will flood the market with enough new bonds to push long-term interest rates higher.

Fee income

“You see the earnings power of banks like J.P. Morgan Chase — it is pretty impressive. But the driving factor in overperformance has been trading revenue and investment-banking fees, which are volatile,” Doctoroff said.

Here’s non-interest income for the third quarter compared with consensus estimates among analysts polled by FactSet from our Oct. 8 earnings preview, along with actual figures for the second quarter of 2020 and the third quarter of 2019:

Bank Ticker Non-interest income – Q3 2020 Estimated non-interest income – Q3 2020 – Oct. 7 Actual Q3 non-interest income less estimate Non-interest income – Q2 2020 Non-interest income – Q3 2019
J.P. Morgan Chase & Co. US:JPM $16,134 $14,911 $1,223 $24,049 $15,239
Bank of America Corp US:BAC $10,207 $10,476 -$269 $11,512 $10,632
Citigroup Inc. US:C $6,835 $6,501 $334 $8,773 $6,987
Wells Fargo & Co. US:WFC $9,494 $8,266 $1,228 $12,334 $10,815
Goldman Sachs Group Inc. US:GS $9,697 $8,789 $908 $12,461 $7,805
Morgan Stanley US:MS $10,171 $9,338 $833 $11,932 $11,052
U.S. Bancorp US:USB $2,712 $2,504 $208 $2,049 $1,873
Truist Financial Corp. US:TFC $2,215 $2,004 $211 $2,545 $1,195
PNC Financial Services Group Inc. US:PNC $1,797 $1,523 $274 $1,584 $1,830
Bank of New York Mellon Corp. US:BK $3,117 $3,131 -$14 $3,157 $3,134
Capital One Financial Corp. US:COF $1,826 $1,157 -$1,157 $1,096 $1,222
State Street Corp. US:STT $2,306 $2,265 $41 $2,163 $2,100
Source: FactSet
EPS

Most of the 10 largest U.S. banks beat third-quarter consensus earnings-per-share estimates:

Bank Ticker EPS – Q3 2020 Estimated EPS – Q3 2020 – Oct. 7 Actual Q3 EPS less estimate EPS – Q2 2020 EPS – Q3 2019
J.P. Morgan Chase & Co. US:JPM   $2.92 $2.22 $0.70 $1.38 $2.68
Bank of America Corp US:BAC   $0.51 $0.49 $0.02 $0.37 $0.56
Citigroup Inc. US:C   $1.40 $0.89 $0.51 $0.50 $2.07
Wells Fargo & Co. US:WFC   $0.42 $0.44 -$0.02 -$0.66 $0.92
Goldman Sachs Group Inc. US:GS   $9.68 $5.28 $4.40 $0.55 $4.79
Morgan Stanley US:MS   $1.66 $1.24 $0.42 $1.96 $1.27
U.S. Bancorp US:USB   $0.99 $0.90 $0.09 $0.41 $1.15
Truist Financial Corp. US:TFC   $0.79 $0.81 -$0.02 $0.67 $0.95
PNC Financial Services Group Inc. US:PNC   $3.40 $2.02 $1.38 $8.43 $2.94
Bank of New York Mellon Corp. US:BK   $0.98 $0.94 $0.04 $1.01 $1.07
Capital One Financial Corp. US:COF   $5.06 $2.08 $2.98 -$2.21 $2.69
State Street Corp. US:STT   $1.45 $1.41 $0.04 $1.86 $1.42
Source: FactSet

So 2020, so far, can only be called a good year for the banks — the group looked ahead during the first and second quarters and set aside a lot of money to weather the expected loan loss storm, which was delayed by unprecedented government and central-bank stimulus.

But “you can’t keep the patient on life support forever,” Doctoroff said, pointing to a possible spike in loan losses during the fourth quarter and first quarter of 2021. There’s no way of knowing how long this credit cycle may last because of all the uncertainty about containing the coronavirus.

Once there is a clear light at the end of the tunnel, reserve releases and a steepening yield curve may set up a long period of rising earnings for the banks. Eye said Fort Pitt Capital Group has “a slight overweight with the financials, so the rebound play is in line with our view.”

Economic Report: More unemployed Americans are exhausting state benefits and facing bleak job prospects

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The number of jobless Americans getting unemployment compensation fell by more than 6 million from August to early October, but at least one-third appear to have simply exhausted their state benefits and shifted to a temporary federal-relief program.

What it signals, economists say, is the decline in existing jobless claims is not quite as good as it looks. More people are going back to work or finding new jobs, to be sure, but the labor market is not recovering as rapidly as it was during the summer.

Read:Stimulus stalemate threatens more hardship and slower recovery, economists warn

And:‘I’m terrified, frankly’: These people are depending on another stimulus to stay afloat

The higher flow of people into the federal program, what’s more, also points to an increasing number of people who face the prospect of long-term unemployment. They would have exhausted the 26 weeks’ worth of jobless benefits typically provided in most parts of the country, and in some cases, even used up an extra 13 weeks of compensation that states can offer in times of particularly high unemployment.

Read:Jobless claims sink to pandemic low of 787,000 as California comes back on line

The government’s data on continuing federal jobless benefit claims is reported with a two-week lag, so the most recent comparable figures available are for Oct. 3.

Let’s look at the numbers, using actual or unadjusted data.

So-called continuing jobless claims provided by the states fell from 15.2 million on Aug. 1 to 9 million as of Oct. 3. That’s a 6.2 million decline.

Yet during the same period the number of people who began to receive extended benefits through a temporary federal program, called Pandemic Emergency Unemployment Compensation, climbed to 3.3 million from 1.3 million.

That’s an increase of 2 million, but the actual figure is probably higher by several hundred thousand. Three states, including Florida, Georgia and Kentucky, did not report how many people were getting extended federal benefits.

The decline in total jobless claims — state and federal combined — is undeniably good news. It suggest the economy continues to regain jobs and recover from the coronavirus pandemic.

“What we see is even with PEUC rising there has still been a very notable improvement in continuing claims,” said Tom Porcelli, chief U.S. economist at RBC Capital Markets.

Still, the sharp increase in people getting federal benefits is a worrisome sign. It means they have lost their old job permanently or can’t find a new one.

“Some of the unemployed are being rehired, but it is still going to take years for the labor market to fully recover from the viral recession,’” said chief economist Gus Faucher of PNC Financial Services.

The federal program is also set to expire on Dec. 31. Millions of unemployed Americans could face even greater hardship right after Christmas if it’s not extended.

A number of large companies have announced major layoffs since September and Congress is stalemated on the passage of another fiscal stimulus package, raising the specter that the economic recovery could flag.

Outside the Box: We have two inherited IRAs, one for a spouse and one for adult children — can you help us figure it out?

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Q: My family is having difficulty with IRA RMDs and spousal continuation. Any insight on the following would be greatly appreciated. There are two qualified IRAs in my mother’s name (with my father as beneficiary) and one nonqualified IRA in my mother’s name (with my siblings and I as beneficiaries). My father is 72 and my mother recently passed away at 67. Dad is subject to RMDs but Mom was not. We are trying to get a handle on our options. Can you help?

A.: I am happy to try to help. First, my condolences on the loss of your mother.

Your use of the terms qualified, nonqualified, and spousal continuation suggest that you are dealing with annuity contracts. If that’s the case, there are two layers of rules to deal with. First is the type of account and second is the provision in each annuity contract. This added layer of complexity is one reason I am not a fan of using annuities in IRAs in most cases.

Option one for the IRA accounts, is for your dad to transfer your mom’s IRA funds into his IRA. Only a spouse as beneficiary can do this. There are no taxes on this transfer. Those assets are then treated as if they were always his. Therefore, because he is at that age, those funds would be subject to Required Minimum Distributions (RMD) on the same scale as his own IRAs.

This is a popular move due to its simplicity. However, because your mom was younger and not yet subject to RMD, there is another choice.

Your dad’s second option is to take your mom’s IRA accounts as a spousal beneficiary of an Inherited IRA. Doing this, your dad can wait to take RMD until the time your mom would have been subject to RMDs at her age 72. This is a smart choice when the added RMD from option one is less desirable.

Regardless of whether he selects option one or two, he then needs to understand what provisions in the underlying annuity contract affect him.

For what you are calling a nonqualified IRA it depends on if it is actually an IRA account or just a nonqualified annuity. If it is NOT an IRA and is just a nonqualified annuity, the annuity contract dictates what you and your siblings can do.

If it is an IRA, the rules for nonspouse IRA beneficiaries apply. She died this year so the new rules from the SECURE Act of 2019 apply. As far as the IRS is concerned, distributions can be made at any time in any amount, but the entire account would need to be distributed to the beneficiaries by the end of 2030.

Each distribution taken would be paid proportionately to each beneficiary unless you split the IRA into separate Inherited IRAs for each beneficiary. If the account is split (do this by Sept. 30 of the year after the year of death), each beneficiary can decide independently how much to take and when between now and 2030. The underlying annuity contract may not or may not make your desired distribution plan easy. Most beneficiaries in these cases have the option to surrender the annuity contract free of surrender charges. Proceeds are then invested per each beneficiary’s preferences.

This area of the tax code can be confusing and adding the extra layer of annuity rules can cause a mess. You should talk to your adviser about what can be done with these specific contracts.

If you have a question for Dan, please email him with “MarketWatch Q&A” on the subject line.

Dan Moisand is a financial planner with Moisand Fitzgerald Tamayo. His comments are for informational purposes only and are not a substitute for personalized advice. Consult your adviser about what is best for you. Some questions are edited for brevity.

Economic Report: Existing-home sales soared higher in September — but the number of home listing has dropped to a record low

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The numbers: Existing-home sales increased for the fourth consecutive month in September, as the U.S. housing market benefitted from low interest rates.

Total existing-home sales rose 9.4% from August to a seasonally-adjusted, annual rate of 6.54 million, the National Association of Realtors reported Thursday. Compared with a year ago, home sales were up nearly 21%.

“Home sales traditionally taper off toward the end of the year, but in September they surged beyond what we normally see during this season,” Lawrence Yun, the trade group’s chief economist, said in the report. “I would attribute this jump to record-low interest rates and an abundance of buyers in the marketplace, including buyers of vacation homes given the greater flexibility to work from home.”

Economists polled by MarketWatch had projected existing-home sales to rise to a median rate of 6.36 million.

What happened: The fast pace of home sales has quickly dwindled the remaining supply of homes on the market, however. More than seven in 10 homes on the market in September sold in less than a month. As a result, by month’s end the total inventory of homes for sale dropped to a 2.7 months’ supply, the lowest on record. A 6-month supply of homes is considered to be indicative of a balanced market.

The dwindling inventory of homes for sale, when combined with increased demand from buyers, drove prices higher. The median existing-home price was $311,800, roughly 15% higher than in September 2019. That’s the largest increase in home prices since late 2005.

Nevertheless, home sales grew in every region across the country, led by a 16.2% jump in the Northeast, the National Association of Realtors reported.

The big picture: A combination of factors has driven home sales to their highest pace in many years. “Existing home sales continued to register higher than one year ago as low mortgage rates helped offset the sting of sharply higher prices,” said Danielle Hale, chief economist at Realtor.com. “Greater buyer and, perhaps more importantly, seller confidence also helped boost home sales activity this month.”

But there’s still the chance that the wheels could come off for the housing market in the months to come. Unless sellers choose to enter the market in droves, the limited supply of homes for sale will naturally put a ceiling on how high sales volumes can go. And as the pandemic continues, the risk of a prolonged economic downturn could cause some buyers to rethink making a big purchase right now given rising home prices, especially if they are worried about their job security.

What they’re saying: “Higher earners have been more likely to retain their incomes, allowing the housing market to continue booming despite extremely high unemployment levels. Without a broader recovery, there remains risk to the housing market,” said Ruben Gonzalez, chief economist at Keller Williams.

“Mortgage rates are rock-bottom, and most homebuyers are much older than the typical customer-facing employee laid off during the Covid epidemic, but lending standards have tightened. We doubt this will be enough to push activity down materially anytime soon, but we don’t expect further big gains in home sales,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

Market reaction: The Dow Jones Industrial Average DJIA, +0.14%   and the S&P 500 SPX, +0.14%   were both down in Thursday morning trading.

Existing home sales soar by more than 9% in September

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Existing-home sales increased for the fourth consecutive month in September, as the U.S. housing market benefitted from low interest rates. Total existing-home sales rose 9.4% from August to a seasonally-adjusted, annual rate of 6.54 million, the National Association of Realtors reported Thursday. Compared with a year ago, home sales were up nearly 21%. The fast pace of home sales has quickly dwindled the remaining supply of homes on the market, however. The total inventory of homes for sale at the end of the month dropped to a 2.7 months’ supply, the lowest on record.

FA Center: FOMO is every investor’s worst enemy. Here’s how to fight it

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Anxious investors tell their financial adviser all kinds of concerns, from money worries to family conflicts to health issues. But there’s one fear that’s particularly challenging for advisers to address: fear of missing out on what others enjoy.

Seasoned advisers are accustomed to doubling as therapists, reasoning with clients who are nervous about everything from shaky markets to their partner’s spending habits. When clients lament not pouncing on investment opportunities, they can become distraught or downright ornery.

“Typically, clients come to us after they’ve heard about something that they think they should’ve invested in,” said Patrick Mulhern, a London-based adviser who works with American expats. “When bitcoin was shooting up every day, they’d call and say, ‘Why isn’t that in our portfolio? Is it too late to get some of that?’”

Like many advisers, Mulhern uses such inquiries as a springboard to step back and educate clients. If they’re beset with FOMO (fear of missing out), he reminds them, “We’re not trying to buy the latest new thing. The flip side of missing out on a scary, volatile investment is that we have a plan that’ll get you where you want to go without taking such high risk.”

Understanding the psychology that drives FOMO helps advisers respond effectively. It’s easier to sweep away someone’s fear if you can identify how it came about. Larry Gamboa, an adviser in Fairfield, N.J., finds that some investors constantly worry about missing the bandwagon.

“There’s often an insecurity about making mistakes,” he said. “So I maintain their long-term perspective, which allows us to avoid costly short-term mistakes like buying high and selling low.”

Behavioral economists analyze how investors think. As more people use smartphones to invest, the temptation to trade frequently — and brag about big gains — increases. Shlomo Benartzi, a finance professor at the UCLA Anderson School of Management, urges advisers to serve as a kind of “app doctor,” recommending that investors scale down their use of mobile devices in making what are often impulsive and emotional financial decisions.

Experts also caution that many of us are subject to biases that can derail a sound strategy and stoke fear. For example, Andrew Rosen,a certified financial planner in Wilmington, Del.,says that “pack bias” can drive investors to chase a passing fad.

“They think that everyone else is buying it so they should too,” Rosen adds. “There’s a fear of being left behind. We’re pack animals. We want to be accepted by our peers. It’s an innate sense of wanting to belong.”

He adds that social media ups the ante. Because many people curate their online lives to portray themselves as perpetually happy and victorious, it leaves the rest of us racing to catch up. “The fear [of missing out] is worse with Facebook,” Rosen said. “We see how others are succeeding and living this great life.”

Rosen coaches clients to overcome FOMO by shifting the focus to their own happiness. If they regret missed opportunities, he’ll ask, “What makes you happy in life?” They may then reflect on the joys of family or their favorite hobbies. So Rosen will highlight how they can take prudent steps to increase their happiness. “I’ll help them reframe their life so that we align their money decisions with what makes them happy,” he said. “That pulls them out of FOMO and puts them on track to live their ideal life.”

More:You have ample savings. So why are you scared of running out of money?

Plus: The 5 questions to ask before choosing a financial adviser

The Moneyist: My husband bought a property in Florida, but only put his name on the deed. Will his adult children inherit this home?

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Dear Moneyist,

My husband and I have been married for 25 years. We do not have children together but he has children from a previous marriage.

We are retired now, and he bought property in Florida for us to live in. My name is not on the deed of the property, and he has not made a will yet. I keep complaining to him about it.

The Moneyist: My husband earned less than me for a decade, so I paid more towards our expenses. I want him to repay me

If he should die without a will, will his adult children and grandchildren be entitled to the property and house? Hopefully, you will be able to answer this question and set my mind at ease.

Carla

Dear Carla,

Your husband appears to have control issues at worst or, at best, problems with being direct and transparent. This is not the way to deal with a family property, especially after 25 years of marriage. If your husband wants his children to inherit his estate when he is gone, he should discuss it with you like a man, face to face, and you should outline a plan for your future together. But this game of cat and mouse, where he makes unilateral decisions about your future is not a respectful or helpful way to conduct a 25-year marriage.

Not knowing if you’re going to have a place to live after your husband dies, assuming he predeceases you, creates a constant feeling of unease. The whole point of saving for retiring and being fortunate enough to retire comfortably is so you can see out your final years together with the knowledge that you will both be financially secure. Only one person in this relationship knows what that feels like and, given that you have raised this issue with him, he is aware that you do not enjoy that same peace of mind.

The Moneyist: At the end of the month, my son asks me to pay his rent and says, ‘You don’t want us to be evicted, do you?’ So I have to pay

Florida is an equitable distribution state and, for the most part, divides property 50/50. Here’s the legal interpretation from Schnauss Naugle Law in Jacksonville, Fla.: “If the decedent’s homestead property was titled in the decedent’s name alone, and if the decedent was survived by a spouse and descendants, the surviving spouse will have the use of the homestead property for his or her lifetime only (or a life estate), with the decedent’s descendants to receive the decedents’ homestead property only after the surviving spouse dies.”

You will have the right to live in this property for the remainder of your life. If you divorced, however, anything purchased during your marriage is considered marital property and, even though this home was purchased in your husband’s name only, it would be divided 50/50. In Florida, “equitable distribution” is mostly treated as “equal distribution.” According to this interpretation of family law in Florida by Arwani Law: “Even if he purchases the car with his own money and puts the car title in his wife’s name, it is still considered marital property.”

And as most lawyers will tell you, a lack of communication is one way of buying a ticket to divorce.

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You can email The Moneyist with any financial and ethical questions related to coronavirus at qfottrell@marketwatch.com

Hello there, MarketWatchers. Check outthe Moneyist private Facebook FB, +4.17%  group where we look for answers to life’s thorniest money issues. Readers write in to me with all sorts of dilemmas. Post your questions, tell me what you want to know more about, or weigh in on the latest Moneyist columns.

NerdWallet: What’s the difference between being preapproved and prequalified for a credit card?

This post was originally published on this site

This article is reprinted by permission from NerdWallet.

When you’re considering applying for a credit card, it’s helpful to know beforehand whether you have a good chance of getting approved, especially if you aren’t sure your credit score is high enough. That’s because applying for a credit card typically means a “hard pull” on your credit, which can cause your score to take a temporary dip.

Consumers can get a better sense of their odds by getting “prequalified” or being “preapproved” by the credit card issuer. The terms are similar, and some issuers even use them interchangeably. But there’s an important distinction.

In general:

  • Prequalification means that the issuer has taken a look at your financial details and given you its best guess as to whether you’d be approved if you applied. It’s not a guarantee, but it’s a good sign.
  • Preapproval, on the other hand, is more official. If you’ve truly been preapproved for a credit card, you’re almost certain to get it if you apply.

To make things even more confusing, both can also be referred to as “prescreened” offers.

When you go through a prequalification or preapproval process with a card issuer and get a thumbs-up for a particular offer, read the disclosure you’re provided. It should make it clear where you stand — whether you’ve just jumped the first hurdle or are nearly at the finish line.

Preapproval has a different meaning with credit cards

With installment loans, such as mortgages and car loans, the difference between prequalification and preapproval is more clearly defined, and it’s not uncommon for consumers to go through both as they get closer to a decision. As you start looking for a house, for example, prequalification gives you an idea of how much you’ll be able to borrow. Getting preapproved allows you to make a firm offer to the seller when you find what you want.

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With credit cards, on the other hand, you don’t typically need that kind of advance approval. So prequalification is much more common that true preapproval. In fact, receiving an unsolicited guarantee of approval from a credit card issuer can be a red flag. That’s because some issuers promise preapproval in the hopes of selling you on a card you don’t necessarily need or want.

Preapproved credit card offers may come from an institution where you’re already a customer, in an effort to get you to open another card. Or they may come from issuers that specialize in “instant-approval” cards, which tend to carry extremely high fees.

Review any preapproved credit card offer you receive skeptically before applying to make sure it’s the right choice for you.

If you’d prefer not to get prescreened offers in the mail, you can opt out by going to optoutprescreen.com, which is run by the consumer credit reporting bureaus. You can sign up to opt out of prescreened offers for five years or permanently.

Major issuers generally offer prequalification

Many major credit card issuers and some smaller ones offer prequalification on their websites. The issuer asks for personal information, including your name and address and some or all of your Social Security number. It uses that information to run a “soft” check of your credit, which is one that doesn’t affect your credit scores.

In some cases, you’ll be able to see not only the card you prequalify for, but also the exact terms of the offer — such as the credit limit and interest rate — before you apply. These kinds of prequalfications are more specific and detailed and may even amount to a preapproval, but you still have to formally apply for the card.

If you decide to apply for the card based on that information, the issuer will go ahead and run the hard credit check. It will likely ding your score, but you’ll have more assurance of approval.

Read: What is the FICO Resilience Index, and how will it affect your credit?

You can also make your own best guess about whether you’ll be approved for a card by considering your credit score. Some credit cards are available only to those with excellent credit, or good to excellent credit.

More from NerdWallet:

Kimberly Palmer is a writer at NerdWallet. Email: kpalmer@nerdwallet.com. Twitter: @kimberlypalmer.

Autotrader: Keep your car running longer with this maintenance checklist

This post was originally published on this site

Your vehicle has an amazing array of parts that work in harmony to deliver you where you need to go. Along with the key components such as your engine, transmission, and transaxle, there are supporting pieces that need your attention regularly. To overlook regular maintenance of your vehicle’s critical systems will cost you lots of money, waste your time, and could jeopardize your safety.

But not all the maintenance items listed in your owner’s manual need equal attention. “Service Engine Soon” lights mean you need to take note. Other warning lights demand immediate attention. Should the oil “lamp” illuminate on your instrument panel, it’s time to immediately stop the vehicle and seek assistance. To continue driving could cause catastrophic engine damage. Here’s a guide to what service items require attention and how often.

Regularly inspect:

Belts and hoses

Rubber wears out. Hoses are constantly heating and cooling, expanding and contracting with every trip you make. Your belts experience a similar life, but even more so since they’re stretched to the limit driving the accessories that make your engine operate properly. Over time these parts will tend to crack and ultimately fail.

As a quick test, hoses should feel hard when squeezed (make sure the engine is cool). If they’re soft or show any cracks in the rubber, replace them immediately. Belts will also show aging over time with cracks or missing ribs on the inside surface. In these cases, replacement is recommended.

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If everything looks good after your inspection, set up your system to swap them out every 80,000 miles or six years, regardless. That’s a good lifespan for these parts.

Mufflers and exhaust components

Today’s vehicles use stainless-steel exhaust parts, meaning they last a lot longer than your father’s muffler. While your exhaust system may turn brown due to the environment, it’s surface corrosion and probably won’t need your attention.

If you hear a ticking noise coming from under the vehicle, it’s time for an inspection. This could be a sign of a cracked exhaust manifold (if coming from the engine area) or a hole in the muffler or exhaust tubing.

A qualified technician needs to weld these types of exhaust leaks shut. While catalytic converters can become plugged over time and reduce vehicle performance, the manufacturer guarantees them for a minimum of 80,000 miles and rarely go bad. If you notice a reduction in engine power with no other obvious issues, it could be a plugged converter.

Struts and shock absorbers

Shocks and struts can wear out over time. When they wear excessively, they can cause loss of vehicle steering control when negotiating dips and rises in the road. Not to worry, most shocks and struts will deliver four to six years’ solid service. If you have your car serviced for an oil change or tire rotation, visually checking these parts for leaks or damage should be just a part of the inspection process.

Fluid leaks

Always look around your vehicles for signs of fluid leaks. The color of the fluid, green, red, or black can help determine the level of the problem. But some leaks are not the end of the world. Red fluid leaks in the middle of your vehicle generally signal transmission woes and require immediate attention since low fluid levels can lead to failure of a very expensive component.

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If your vehicle is older, brown drips can come from leaky engine main seals or valve cover gaskets. These are generally not a huge issue unless your engine drops below the proper operating level as noted on the engine’s dipstick. Green liquid (Toyota uses red) coolant is a big deal because you could overheat if the level runs low. In any event, regularly check your fluids to ensure they are topped off.

Annual inspection items:

Constant velocity joints

Commonly called CV joints, these marvels of engineering allow the transaxle to transfer engine power to the wheels/tires on your vehicle while negotiating irregularities in the road. These units feature a U-joint style of coupling on each side of the transaxle protected by a rubber boot to retain lubrication and keep harmful road dirt out.

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If these joints leak or make a grinding noise, replace them. The best thing you can do here to avoid failure is make sure the protective boots are in good condition. Like a guard standing watch, once the boots tear or crack, they need replacement. Check them once a year and have them replaced every four years, regardless.

Brakes

Without properly working brakes, your driving experience can be far more exciting — in a bad way. Most brakes will last at least 30,000 miles or three years, but that depends on the way you drive. Stop and go city driving will increase brake wear while highway driving could give you five or even seven years between brake jobs. Today, the best thing about brakes is that they tell you when they need attention. Modern-day brake linings feature a sensor that emits a scratching noise that will signal the need for brake pad replacement.

Steering

Steering system issues are rare these days. If you or your mechanic check the power steering fluid reservoir regularly, you should be fine. If your vehicle steers left or right, it’s usually something else like alignment or suspension wear. Common culprits are worn ball joints, Pitman or idler arms, tie rod ends, or simply alignment. Uneven tire wear usually indicates an alignment or suspension problem.

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Timing belts

Like the belts that drive your engine’s accessories, timing belts can wear and stretch over time. Timing belts are extremely important because they keep your engine’s valve opening at exactly the right moment in time with your engine’s crankshaft. If the belt slips or fails, the valves will contact your pistons, and it’s new engine time. Follow the advised replacement times for these belts to the letter.

Water pumps

The water pump pushes the coolant through the engine and radiator, keeping things cool. Water pumps can wear with age, and if they fail, your engine will overheat. Changing your coolant every three years or 40,000 miles will help the water pump live longer because coolant manufacturers incorporate lubricants and rust inhibitors into new coolant. If your car overheats and there are no leaks or obvious failures, the water pump could be a place to look.

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This story originally ran on Autotrader.com.